CHICAGO—The North American big-box sector just finished an historic year, as speculative deliveries soared past build-to-suits, and
users quickly moved to fill in much of the
new space. And experts from Colliers
International, which recently issued its latest
Big Box Market Report, say the expansion
will likely continue. Furthermore, the appetite among investors for these properties,
defined as distribution buildings with more
than 300,000 square feet and clear heights
of 28-feet or higher, is unlikely to abate.

“Institutional money is flowing into theindustrial market, especially the distributionsector,” says Jack Rosenberg, Colliers’national director, logistics and transportation. In fact, so manyinvestors are trying to establish a foothold that “in 2016, we thinkthat there was about $100 million in equity looking for class A dis-tribution buildings that was not able to get placed.”The intensity of the competition, which pushed down the aver-age cap rate to just 5.3%, has changed how investors approachdeals. “Institutional investors are trying to capture the best prod-uct far earlier,” Rosenberg says. Instead of concentrating theirefforts on stabilized buildings, many have decided to buy longbefore tenants agree to occupancy.

And even though developers built 67% of the 87 million square
feet finished last year on a speculative basis, a far greater proportion than in previous years, Rosenberg seems to have few worries
that new supply will overreach demand this year. He says a client
came to him in September 2015 looking for about 600,000 square
feet, and needed it June. But nothing was available, and the firm
had to go with a build-to-suit.

He expects all types of firms to continue restructuring their supply chains, moves that inevitably call for the construction of class A
distribution centers, usually with 32’ clear ceilings or higher. “The
importance of supply chain infrastructure to all corporations has
been rising,” he says. “Thirty years ago, CEOs typically did not have
supply chain backgrounds, but that’s changing.” Firms looking to
cut costs today, especially ones in manufacturing, know a new supply
chain can add millions to the bottom line; many increasingly select
executives with this kind of experience when top slots open up.

Leasing activity in 2016 keep pace with new development. Users
leased 105 million square feet last year, up 9.6% from 2015. And
even with the record amount of new construction, the overall
vacancy rose only 20 basis points to 7.7%. Furthermore, by the end
of 2016, effective rents reached $4.66, a 10.9% increase over 2015.

“We all know there is going to be a slowdown,” says Rosenberg,
“we just don’t know when.” Barring any unforeseen developments,
the consensus is that 2017 will be another strong year.—Brian J. Rogal

GLOBAL CURRENTS

Populism Brings Geopolitics to CRE

CANNES, FRANCE—In some elections, voters may sleep soundly in the
confidence that they know what the outcome will be after the votes
have been counted, only to wake up to an earth-shaking surprise.

So it was for those who were certain that
Hillary Clinton would become the next
President of the United States, and so it was
for UK residents who believed their nation
would remain in the European Union.

“We don’t normally talk about geopoliticsat a real estate conference,” said CharlesHecker, global research director with con-sulting firm Global Risks. “But geopolitics’moment has arrived, driven by a wave ofpopulism.” Such a wave, he told a MIPIM2017 audience recently, ‘’ferried DonaldTrump into office.”Hecker and Lawrence Yun, chief econo-mist with the National Association ofRealtors in the US, addressed the realestate implications of this populist wave ina panel discussion titled, “Ousting theYun identified nationalism as the phenomenon behind popu-lism in nations as diverse as Russia and the Philippines as well as inthe US and UK. That nationalism, Hecker added, is fed in turn byglobalization, which may give rise to a feeling among voters thatthey have been disadvantaged by a global economy.

However, the long-term trends remain in place. “At worst, globalization is on hold,” said Hecker. The Brexit vote and Trump’s
election may not be advancing the momentum of globalization,
he said, but neither have they thrown it into reverse gear.

Moderator Chris Marlin, president of Lennar International,cited the rise of nationalist “dreams.” Surrounding every construc-tion site in Beijing, for example, is signage with slogans such as“Made in China 2025.” And Trump, of course, ran on a platformthat promised to “Make America Great Again.”Hecker said his firm is monitoring whether these dreamstranslate into tariffs and other tax barriers. He noted that werethe US to enter trade wars with Mexico and China, Mexico’seconomy would suffer greatly and China’s would be hurt—butthere would also be a boomerang effect that may plunge the USinto recession.

On the domestic front in the US, Yun was encouraged by the
outreach he received from Ben Carson, the new Secretary of
Housing and Urban Development. However, he said, calls by
Treasury Secretary Steven Mnuchin to undercut the GSEs
posed concerns, as have discussions about doing away with 1031
exchanges. —Paul Bubny

NEW ECONOMY

Hotels Face Airbnb Head-On

SAN FRANCISCO—Airbnb has an online hospitality platform of roughly
three million global rental unit listings. According to a recent
Smith Travel Research study, this figure is more than the number
of listings for the next three largest traditional hotel companies
combined. The study indicated that Airbnb had a fairly small market share across 13 global markets, with less than 4% of total
demand and 3% of revenues.

ExecMoves

Newmark Grubb Knight
Frank has created a critical
transactions group and
tapped 25-year industry
veteran Thomas Bogle to
spearhead the effort. He
will join existing partners
and vice chairmen Greg
Katz and Tim Capps in the
creation of the practice.